BOSTON (TheStreet) -- Welcome back to another Biotech Stock Mailbag.

Tomas R. writes, "Your preview of the Biogen (BIIB - Get Report) Alzheimer's data was helpful. What can you say also about Eli Lilly's (LLY - Get Report) expected presentation at the meeting?"

 

The Alzheimer's Association International Conference (AAIC) running July 18-23 is a welcome respite from what is normally the slow season for medical meetings. This year's AAIC meeting is particularly newsy given the planned presentations from Biogen and Eli Lilly.

Both companies are developing antibodies targeting beta amyloid, a sticky protein that clumps together to form nerve-deadening plaques in the brain. Scientists have long assumed sopping up beta amyloid in the bloodstream and removing amyloid plaques from the brain should improve cognition, memory and function in Alzheimer's patients.

Unfortunately, the "beta amyloid hypothesis" has fallen short in clinical trials. To date, none of the amyloid-targeting antibodies have been able to demonstrate a significant cognitive or functional benefit compared to placebo in phase III clinical trials involving thousands of Alzheimer's patients.

Despite all the setbacks, the development of beta amyloid antibodies persists because of evidence suggesting the drugs might still benefit patients at the earliest stages of Alzheimer's. Current clinical trials of amyloid-targeting antibodies enroll patients with prodromal and mild Alzheimer's disease. The thinking goes that blocking beta amyloid before it causes significant loss of cognition and memory might produce significantly better (disease modifying) results.

Biogen stoked renewed investor interest in Alzheimer's with its antibody adacanumab following positive results from a small phase I study presented in March. Updated results from this study will be presented on July 22 at the AAIC meeting. You can read my preview of the new Biogen adacanumab data here.

Lilly's antibody solanezumab (sola) has run a classic course through Alzheimer's clinical development. Two large phase III studies (EXPEDITION 1 and 2) comparing sola against placebo in patients with mild and moderate Alzheimer's failed to show any difference in cognition or function. But when Lilly scientists pried apart the EXPEDITION 1 and 2 studies, they found evidence that mild Alzheimer's patients benefited from treatment with sola. When data in mild Alzheimer's patients from both phase III studies were pooled together, sola produced a statistically significant improvement across three different measures of cognition and one of two measures of function.

These kinds of post-hoc analyses are susceptible to bias and are therefore not strong enough to convince regulators to approve an Alzheimer's drug. Lilly is now conducting another large randomized, placebo-controlled phase III study of sola, enrolling only mild Alzheimer's patients, in order to confirm the benefit seen in the retrospective analyses of the earlier, failed studies. Results from this sola study, known as EXPEDITION-3, are expected next year. Lilly needs EXPEDITION-3 to succeed for regulatory approval of sola in Alzheimer's.

In the interim, Lilly is presenting at AAIC next week results from a two-year extension of the EXPEDITION 1 and 2 studies which could provide additional evidence supporting sola's ability to modify the course of Alzheimer's.

In the EXPEDITION-EXT study, mild Alzheimer's patients who received sola in EXPEDITION 1 and 2 for 18 months continue on the drug for another two years. The mild patients treated originally with placebo crossover to treatment with sola, also for two years. The analysis Lilly is conducting in EXPEDITION-EXT will compare the cognition and function of the patients starting on sola early versus patients who started on sola late.

If sola is disease-modifying, the early patients (those treated with sola continuously for three and half years) should fare better than the late or delayed-start patients (those treated with the drug for 2 years.) Said another way, the positive treatment difference observed between sola and placebo in mild Alzheimer's patients from EXPEDITION 1 and 2 after 18 months should be maintained (at least partially) through the added two years of EXPEDITION-EXT.

This is not to say delayed-start sola patients won't benefit at all. The mild Alzheimer's patients who started on placebo and then switched to sola should show some improvement in cognition and function, too, if the drug is active.

Lilly's sola EXPEDITION-EXT presentation is scheduled for July 22.

Justin L. writes, "You and your short buddies are getting your asses kicked and I love it. Nobody cares about your bashing anymore, so just keep whining about overvalued biotech stocks so the rest of us can laugh at you."

Greenlight Capital's David Einhorn sent his second-quarter letter to investors this week. This line stood out to me:

"In today's market, the best performing stocks are companies with exciting stories where accountability is in the distant future."

Einhorn was referring to Netflix (NFLX) and how the stock moves higher relentlessly despite reporting lower earnings and higher spending. Netflix investors don't care about fundamentals. Instead, they're enthralled by the Netflix story: Original content, streaming and the demise of traditional television.

He could have easily been describing biotech stocks. Substitute Intrexon (XON - Get Report) or its cousin Ziopharm Oncology (ZIOP) for Netflix and Einhorn's comment still rings true, maybe even more so. Biotech investors are in love with a good story and they're not much concerned if the available clinicals don't quite live up to the hype just yet. This market is defined by the mantra, "buy first, worry about fundamentals later," if ever.

Does anyone honestly believe that every single company developing cancer immunotherapies today will produce approvable, blockbuster products? Of course not, yet that's not stopping companies with preclinical or early-stage drugs from selling initial public offerings at multi-billion dollar valuations. (Hello NantKwest.)

Juno Therapeutics (JUNO) and Kite Pharma (KITE) are the darlings of the CAR-T world, and deservedly so, but they're also being rewarded with market caps which assume huge success for programs still early and filled with risk.

The "what me, worry?" investor mentality is pervasive in biotech and drug stocks, even in companies dealing with federal investigations. Insys Therapeutics (INSY) is at the center of federal investigations into allegations of corrupt drug-marketing practices and insurance fraud. Recently, a nurse practitioner pled guilty to accepting bribes in exchange for prescribing Insys' narcotic painkiller Subsys.

Other doctors -- top Subsys prescribers -- have been arrested on charges of health care fraud, as thoroughly documented in eye-popping detail by Roddy Boyd, a crackerjack investigative business reporter. Bad news doesn't matter. Insys' stock price grinds higher as if nothing is wrong.

I understand Justin's desire to gloat. The iShares Nasdaq Biotechnology ETF (IBB) is up an astounding 9% just in the past six trading days, reaching an all-time high. The SPDR S&P Biotech ETF (XBI) has increased 11% in the same time period, also trading at an all-time high. I'd just warn him that all stories have an ending, and in biotech that ending is often ugly.

In hyper-bullish markets like today's where everyone is bullish and risks are ignored, I often re-read a column written years ago by my friend and former colleague Herb Greenberg to understand why stocks sometimes act in ways which defy fundamentals (or in biotech, the laws of gravity.) Here's my favorite part:

Don't confuse stocks and companies. They sometimes go in opposite directions. Stocks sometimes really do lie. Sometimes they are pushed artificially higher by a rotation by investors from one industry group to another, because that one sector happens to be in favor. Sometimes they lie because of short squeezes, which occur when short sellers -- who bet stock prices will fall -- are for some reason forced to rapidly purchase the shares they sold short. And sometimes they lie because of momentum. Momentum can take stocks to infinity and beyond, but true believers can wind up learning that momentum has a dark side: It is called reverse momentum, and it tends to kick in when you least expect.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.